I just finished reading a piece by someone espousing the idea that the US needs to set the minimum wage standard to a “Living wage” level. By the author’s calculations based on living expenses, the new minimum “living” wage should be $48000 per year. I am posting my response to this socialistic, entitlement-minded idea.

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How does an employer pay someone $48000 per year for making $20000 worth of cheeseburgers? The only way this is possible is to raise the price of products and services sufficiently to cover the costs of payroll and benefits and still make a profit. So, it becomes a vicious cycle. You have computed the living wage $48000 annually, in order to pay that companies must raise prices, they must also raise prices additionally to cover the increase in operating expenditures caused by every other company charging more for products and services, and the government must raise taxes because they are also paying more for products and services; with the higher prices and taxes $48000 is no longer a “living wage” according to your formula. So, do we raise the living wage again to, say, $65000 and start the whole chain reaction over?

The same is true for Universal Healthcare. Only 51% of American households pay any federal income taxes; how can half of country afford to pay for their own and the other half of the country’s healthcare? Universal Healthcare will make medical care more affordable in the way that mandatory automobile insurance made the insurance more affordable; it didn’t. The only thing Universal Healthcare will accomplish is to raise the price those who aren’t getting it for free will need to pay to maintain their own health insurance and increase the taxes on the half of the country that actually pays any. And to exacerbate the situation, millions of people who currently maintain insurance would stop paying for coverage that they can qualify to get for free under UHC. Many employers that pay some form of healthcare for their employees currently would either drop coverage because the fines would cost them less than actually paying for health benefits or drop employees to maintain the profitability of their companies. The addition of more unemployed, non-taxpaying people and shrinking pool of those actually paying into health benefits funds would precipitate a rise in the overall cost for those who actually pay for healthcare benefits, and the increased expense would require the government to raise taxes to cover the costs of providing healthcare benefits to those who do not pay for themselves.

Back to your main subject, the living wage; another thing happens when lower skill-tier wages are arbitrarily raised; people who are earning something between the current and new minimum wage rate become disgruntled. A person who works a job that requires some skill to do or is undesirable due to being physically demanding or having harsh work conditions was compensated for having the necessary skills or willingly enduring the rigors of the job. Now that these people can earn the same or better income and benefits for doing a job that requires less skill and knowledge or is in a considerably nicer environment, they will either leave the harder jobs for easier ones or demand higher compensation. Those who leave will create a deficit of needed minimal staffing levels, which in turn drives the prevailing wage for those positions upward because employers are forced to pay high enough wages to entice people back into the positions. And then the same thing happens at the next higher tier of jobs; everyone who was paid more than the people who just got raises because their jobs require even more skill or have even harsher work conditions will go through the same progression until they are again earning more than the tier II Skill/Environment group. And it continues up the pyramid until everyone again earns proportionally the same that they did before the living wage adjustments. The bottom line is that you can not pay someone mowing lawns the same that you pay a person working in a steel mill because we need steelworkers and no one is going to do it if they can make the same pay selling pants at the mall. By the same token we need surgeons, but it requires far more training, skill, and knowledge to be a surgeon than it does to work on the rolling mill lines; who would endure the time and expense of the years of training, deal with the stress of doing surgery, expense of malpractice insurance, re-certification, etc., etc. if they could make the same living by driving a delivery truck?

For the most part, prevailing wages are at the levels they are due to market forces; supply of people able and willing to do a job versus the need of companies to employ some one to perform a certain function while maintaining a profitable margin. It will never be possible to pay people a living wage for performing unskilled work because it drives up prevailing wages for harder jobs and the overall costs of doing business, thus driving-up prices and eventually resulting in the same proportional distribution of buying power and earnings value that existed prior to the change.